As ground is broken today for new medical complex, new analysis criticizes project's scope

Some of Gov. Bobby Jindal's top lieutenants and a host of other dignitaries will don hard hats and drive ceremonial shovels into dirt today for an academic medical complex designed to put the New Orleans medical corridors in the same orbit as Houston and Birmingham, Ala.

View full sizeDavid Grunfeld, The Times-PicayuneGov. Bobby Jindal has announced that site preparation and early construction should begin even as the UMC board navigates how to finance the rest of the project beyond the $700 million-plus cash the state has committed.

Yet as they celebrate the long-awaited replacement for Charity Hospital, a new financial analysis of the planned University Medical Center offers a highly skeptical assessment of the 424-bed, $1.2 billion construction plan that state authorities and Louisiana State University System administrators have pushed for years.

"UMC, as currently envisioned, is materially larger than is supportable" in the existing New Orleans health care market, "an environment that promises to intensify in the future," according to the analysis from Kaufman, Hall & Associates, an Illinois firm that provides consulting services on health care financing.

The report comes on the heels of Jindal's announcement that site preparation and early construction should commence even as the UMC board navigates how to finance the rest of the project beyond the $700 million-plus cash the state has committed.

Kaufman Hall does not offer an absolute recommendation for a bed count or financing strategy, but the authors frame as likely a scenario that would warrant 332 beds, including both psychiatric and acute care. And even given those assumptions, Kaufman Hall projects a need for annual state general fund subsidies ranging from $72.5 million in 2015, the projected opening year, to as high as $108.4 million in 2019 and $100.7 million in 2020. The idea of direct state support for a teaching hospital is not at issue, but the amount is of particular interest given the long-term uncertainty of the state's finances.

The 83-page document is the latest in a long line of analyses contemplating the ideal size and scope for the hospital. But Kaufman Hall, selected by the University Medical Center governing board in December, is the first consultant not hired directly by either the state, which is responsible for construction, or LSU, which runs the existing charity hospital system, including Interim LSU Public Hospital.

The report also is the first to extend its detailed projections to 2020, well beyond the scheduled implementation of the federal health-care overhaul. Members of the UMC board appointed by entities other than LSU backed the hiring of Kaufman Hall with considerable emphasis.

During Gov. Kathleen Blanco's administration, the state and LSU projected a 484-bed hospital. A Jindal-commissioned review lowered that projection to 424 beds. A second Jindal study by Verite Healthcare Consulting ratified that conclusion but raised the state general fund subsidy forecasts. LSU administrators say that the larger scale is necessary to pool doctors, research teams and other resources on one campus to develop the kinds of programs that distinguish an elite academic hospital, while also generating income.

Still 'bullish on the hospital'

The report does not question whether a new teaching hospital should be built, and Louisiana Health and Hospitals Secretary Bruce Greenstein said, "I remain bullish on the hospital" even as he weighs all projections. Nonetheless, the findings are sure to recalibrate the discussion of exactly what the hospital should look like and how it should operate.

UMC Board Chairman Robert "Bobby" Yarborough said Friday the board will continue its business analysis independent of the Jindal administration's push to begin construction with the two-thirds equity committed to the project. He said Kaufman Hall analysts will attend the board's May 5 meeting "to pour over every page." Yarborough said he also expects the board will invite the authors of earlier projections to explain their work again.

Kaufman analysts have taken a more conservative view than previous consultants on several variables. Among the factors, Kaufman Hall projects a slower population growth in the surrounding region, meaning fewer patients for all hospitals to compete for, and posits that LSU physicians can steer 650 to 680 new insured patients -- commercial or Medicare -- rather than the 2,200 the university has projected. It also makes conservative assumptions about other federal revenue streams and the percentage of new Medicaid patients UMC would attract once the program expands under the new federal health-care law.

Greenstein, whom Jindal has designated as the administration's point man on the project, emphasized an argument that has spanned the terms of two governors: UMC is not intended as a Charity Hospital replacement but as a "new entity with its own business prerogatives," meaning an institution meant to be a "destination for patients throughout the region" regardless of their insurance status. He conceded the Kaufman point that attracting more commercially insured patients "would require a cultural change."

Kaufman Hall noted that Orleans, Jefferson and St. Bernard parishes, the primary service area for the hospital, already have 2.83 beds per 1,000 residents, higher than the 2.7 national average. A 424-bed UMC, closing Interim LSU Hospital and opening a planned 40-bed hospital in Chalmette would bring that ratio to about 3 beds per 1,000 residents. The calculations don't include an 80-bed facility envisioned for the old Methodist Hospital in eastern New Orleans.

The analysis is at odds with what Jerry Jones, the state facilities chief, told the board at its inaugural meeting in August: "People ask are we building too big a hospital but, frankly, my personal feeling on that is I don't think it is big enough."

It was that confidence that state officials have used to justify buying and expropriating 34-plus acres in Mid-City, several city blocks more than what is needed for the complex as designed.

Yarborough said Friday: "There is a lot of disparity there. ... None of this is black-and-white. It's based on so many assumptions and variables that change, what becomes law, what doesn't. It will be a challenging process going forward, and we'll try to get it as right as possible and have this academic medical center at its best."

The question is how that affects the construction calendar. The University Medical Center Corp. was created in 2010 as a state-affiliated entity with the fiduciary responsibility for the hospital, including any debts, and management authority once the hospital opens. Yet Jones' office started planning the hospital -- with influence from LSU and a bevy of consultants -- long before the UMC board was seated.

Architects have completed designs. The state has hired the construction firm that will manage the project. Jones told the board earlier this month that the construction manager would by the early summer provide the state with a final estimate on construction based on the existing plans.

All of that could proceed, Jones said, even as J.P Morgan Chase advisers and other consultants hired previously by LSU continued to pursue federal government insurance for a potential bond sale. Under the ideal for UMC, the U.S. Department of Housing and Urban Development would back the bonds, making the rate considerably lower and reducing annual payments to investors. The other option, which the Jindal administration announced when it called for an immediate construction launch, calls for the state to spend what it has on patient towers, diagnostic facilities and one parking deck, while contracting with a third party that would build an ambulatory care center, energy plant and second parking deck, leasing those facilities back to UMC.

Yarborough said he did not know whether the board's pace on a business plan and financing would affect Jones' schedule. He reiterated the board's ultimate authority in the matter, saying he sees no scenario under which the state forces construction of a hospital at odds with the board's preferences.

Jindal's place in the dynamic is unclear.

In January, Jindal predicted that "the hospital will be built" and that it would win the coveted HUD mortgage insurance. Yet by last week, with U.S. Sen. David Vitter continuing to hammer the plan as "unsustainable," Jindal's top appointee, Paul Rainwater -- also Jones' direct boss -- backed away from any bravado about bed count and noted the expected delivery of the Kaufman Hall report.

Yarborough and his colleagues, Rainwater said, would make the final call.